Hello,

I am struggling with this assignment, I am unable to determine the below questions based off the attached 10K. I have also attached a spreadsheet from another answer to a part of this question (tab 2 on the excel sheet) as well as the actual assignment. I need this ASAP! Any help would be appreciated and also explanations to the answers too, so I can understand it

Specifically, the following critical elements must be addressed:

II. Stock Valuation

A. Based on the figures provided, calculate each of the following:

1. The new dividend yield if the company increased its dividend per share by 1.75

2. The dividend yield if the firm doubled its outstanding shares

3. The rate of return on equity (i.e., the cost of stock) based on the new dividend yield you calculated above

B. What effect would you expect each of the calculations you performed to have in terms of shareholder value? In other words, suppose the company?s goal is to maximize shareholder value. How will each of the situations support or inhibit that goal? Be sure to justify your reasoning.

C. To what extent do you feel the company?s dividend policies support or hinder their strategies? For example, if the company is attempting togrow, are they retaining and reinvesting their earnings rather than distributing them to investors through dividends? Be sure to substantiate yourclaims.

III. Bond Issuance

A. Assuming this company already has bonds outstanding, calculate the following:

1. The new value of the bond if overall rates in the market increased by 5%

2. The new value of the bond if overall rates in the market decreased by 5%

3. The value of the bond if overall rates in the market stayed exactly the same

B. What effect would you expect each of the calculations you performed to have in terms of the company?s decision to raise capital in this manner?In other words, for each situation, would you consider bond valuation to be a viable option for increasing capital? Be sure to justify yourreasoning.

C. To what extent do you feel the company?s bond issuance policies support or hinder their strategies? For example, if the company is attempting tofund operating expenses, refinance old debt, or change its capital structure, are they issuing sufficient bonds to achieve these goals? Be sure tosubstantiate your claims.

Milestone One: Time Value of Money FCF1 Amounts FCF2 4.9 5.5 Pv ($1.91) ($2.89) Total Pv ($7.10) Discussion; we get the rate of interest and FCF from; Five-Year Summary of Financial and Operating Results The Home Depot, Inc. and Subsidiaries Its as follows; Interest and other, net - % of sales 0.6 Earnings before provision for income taxes - % of sales 12 Net earnings - % of sales 7.6 Interest Rate FCF3 FCF4 0.6 0.9 0.7 0.8 FCF5 6.1 6.8 7.6 ($1.24) ($0.65) ($0.40) and Operating Results 0.9 0.7 10.7 9.7 6.8 6.1 0.8 0.7 0.8 9.7 8.6 6.1 5.5 0.8 7.8 4.9 Milestone Two: Stock Valuation and Bond D1= D2= D3= $14.13 $13.10 $9.86 x x x Growth 1.70% 0.80% 1.20% = = = 0.24021 0.1048 0.11832 Sum 0.46333 Discussion We get the above data from the link given; below is the extract; Stock-Based Compensation The per share weighted average fair value of stock options granted during fiscal 2014, 2013 and 2012 was $14.13, $13.10 Fiscal Year Ended Risk-free interest rate Assumed volatility Assumed dividend yield Assumed lives of options February 1, February 2, 2015 2014 1.7 % 0.8 % 22.7 % 26.3 % 2.3 % 2.2 % 5 years 5 years 014, 2013 and 2012 was $14.13, $13.10 and $9.86, respectively. The fair value of these options was determined at the date of grant using the Black-Sc February 3, 2013 1.2 % 27 % 2.3 % 5 years d at the date of grant using the Black-Scholes option-pricing model with the following assumptions: Milestone Three: Capital Budgeting Data Amount Discussion of above ; From the Five-Year Summary of Financial and Operating Results The Home Depot, Inc. and Subsidiaries we have; For initial outlay we get it from ;; NET SALES 100 GROSS PROFIT 34.8 Operating Expenses: Selling, General and Administrative 20.2 Interest Rate Initial Outlay FCF1 -20.2 NPV FCF2 4.9 FCF3 5.5 0.6 FCF4 6.1 0.9 FCF5 6.8 $28.66 IRR 15% Interest and other, net - % of sales 0.6 Earnings before provision for income taxes - % of sales 12 Net earnings - % of sales 7.6 100 % 100 % 34.8 34.8 7.6 20.2 21.1 0.7 0.8 0.8 0.9 0.7 10.7 9.7 6.8 6.1 100 % 5.5 % 34.6 5.7 22.1 1.4 5.4 % 6 0.8 0.8 8.6 7.8 5.5 4.9 0.5 Initial outlay) Milestone Four: Microeconomic Items Implication of Interets rate change on; (a) Time Value Of Money. If the interest rate describes the time value of money, then the higher it is, the more valuable money is in your hands (b)Stock and bond Valuation Rising interest rates reduce existing bond values and falling interest rates increase existing bond values. (c) Capital Budgeting Primarily influences a corporation's capital structure by affecting the cost of debt capital luable money is in your hands and the less valuable money is down the road. ting bond values. FIN 550 Milestone Two Guidelines and Rubric Overview: For the final project, you will use this case study to prepare a financial analysis report for Home Depot Inc. You will include in your analysis the background calculations and managerial analysis for each of the following topics: time value of money, stock and bond valuation, and capital budgeting. You will also discuss macroeconomic variables that might impact the company's financial decision making and strategic objectives. These topics will be covered over four milestones to be submitted throughout the course before you submit the final project. Note that while these elements may seem separate and unrelated, together they will present a well-rounded view of the company's finances with regard to the topics. For this milestone, you will submit a draft of the Stock Valuation and Bond Issuance sections of the final project, along with your supporting explanations. Prompt: Calculate stock and bond valuations for Home Depot Inc. and use the results to support your explanations of shareholder value and increasing capital. Assess the company's dividend policies and bond issuance policies in your explanations. Complete your calculations on the designated tab of the Final Project Student Workbook. Specifically, the following critical elements must be addressed: II. Stock Valuation A. Based on the figures provided, calculate each of the following: 1. The new dividend yield if the company increased its dividend per share by 1.75 2. The dividend yield if the firm doubled its outstanding shares 3. The rate of return on equity (i.e., the cost of stock) based on the new dividend yield you calculated above B. What effect would you expect each of the calculations you performed to have in terms of shareholder value? In other words, suppose the company's goal is to maximize shareholder value. How will each of the situations support or inhibit that goal? Be sure to justify your reasoning. C. To what extent do you feel the company's dividend policies support or hinder their strategies? For example, if the company is attempting to grow, are they retaining and reinvesting their earnings rather than distributing them to investors through dividends? Be sure to substantiate your claims. III. Bond Issuance A. Assuming this company already has bonds outstanding, calculate the following: 1. The new value of the bond if overall rates in the market increased by 5% 2. The new value of the bond if overall rates in the market decreased by 5% 3. The value of the bond if overall rates in the market stayed exactly the same B. What effect would you expect each of the calculations you performed to have in terms of the company's decision to raise capital in this manner? In other words, for each situation, would you consider bond valuation to be a viable option for increasing capital? Be sure to justify your reasoning. C. To what extent do you feel the company's bond issuance policies support or hinder their strategies? For example, if the company is attempting to fund operating expenses, refinance old debt, or change its capital structure, are they issuing sufficient bonds to achieve these goals? Be sure to substantiate your claims. Guidelines for Submission: Your paper must be submitted as a 3- to 4-page Microsoft Word document, not including your calculations, which should be completed in the Final Project Student Workbook. Use double spacing, 12-point Times New Roman font, and one-inch margins. Sources should be cited according to APA style. Instructor Feedback: This activity uses an integrated rubric in Blackboard. Students can view instructor feedback in the Grade Center. For more information, review these instructions. Critical Elements Proficient (100%) Stock Valuation: Calculations Accurately calculates requested figures Needs Improvement (80%) Calculates figures, but with gaps in accuracy or detail Stock Valuation: Shareholder Analyzes the effects of each calculation on Analyzes the effects of each calculation on Value shareholder value, justifying reasoning shareholder value, but response or reasoning is cursory or illogical Stock Valuation: Dividend Assesses the extent to which dividend Assesses the extent to which dividend Policies policies support or hinder company policies support or hinder company strategies, justifying reasoning strategies, but response or reasoning is cursory or illogical Bond Issuance: Bonds Accurately calculates requested figures Calculates figures, but with gaps in accuracy or detail Bond Issuance: Raising Analyzes the effects of each calculation on Analyzes the effects of each calculation on Capital the company's decision to raise capital, the company's decision to raise capital, justifying reasoning but response or reasoning is cursory or illogical Bond Issuance: Bond Issuance Assesses the extent to which bond Assesses the extent to which bond Policies issuance policies support or hinder issuance policies support or hinder company strategies, justifying reasoning company strategies, but response or reasoning is cursory or illogical Articulation of Response Submission has no major errors related to Submission has major errors related to citations, grammar, spelling, syntax, or citations, grammar, spelling, syntax, or organization organization that negatively impact readability and articulation of main ideas Not Evident (0%) Does not calculate figures Value 15 Does not analyze the effects of each calculation on shareholder value 15 Does not assess the extent to which dividend policies support or hinder company strategies 15 Does not calculate figures 15 Does not analyze the effects of each calculation on the company's decision to raise capital 15 Does not assess the extent to which bond issuance policies support or hinder company strategies 15 Submission has critical errors related to citations, grammar, spelling, syntax, or organization that prevent understanding of ideas Earned Total 10 100% 9/4/2016 HD2.1.201510K 10K 1 hd212015x10xk.htm 10K Table of Contents UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 ________________________________________ FORM 10K ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended February 1, 2015 OR TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 Commission File Number 18207 THE HOME DEPOT, INC. (Exact name of registrant as specified in its charter) DELAWARE (State or other jurisdiction of incorporation or organization) 953261426 (I.R.S. Employer Identification No.) 2455 PACES FERRY ROAD, N.W., ATLANTA, GEORGIA 30339 (Address of principal executive offices) (Zip Code) Registrant's Telephone Number, Including Area Code: (770) 4338211 SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT: TITLE OF EACH CLASS NAME OF EACH EXCHANGE ON WHICH REGISTERED Common Stock, $0.05 Par Value Per Share New York Stock Exchange SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT: None Indicate by check mark if the Registrant is a wellknown seasoned issuer, as defined in Rule 405 of the Securities Act. Yes No Indicate by check mark if the Registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes No Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes No Indicate by check mark whether the Registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation ST during the preceding 12 months (or for such shorter period that the Registrant was required to submit and post such files). Yes No Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation SK is not contained herein, and will not be contained, to the best of Registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10K or any amendment to this Form 10K. Indicate by check mark whether the Registrant is a large accelerated filer, an accelerated filer, a nonaccelerated filer, or a smaller reporting company. See the definitions of "large accelerated filer," "accelerated filer" and "smaller reporting company" in Rule 12b2 of the Exchange Act. (Check one): Large accelerated filer Accelerated filer o Nonaccelerated filer o Smaller reporting company o (Do not check if a smaller reporting company) Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b2 of the Exchange Act). Yes No The aggregate market value of the common stock of the Registrant held by nonaffiliates of the Registrant on August 3, 2014 was $107.2 billion. The number of shares outstanding of the Registrant's common stock as of March 6, 2015 was 1,307,394,094 shares. DOCUMENTS INCORPORATED BY REFERENCE Portions of the Registrant's proxy statement for the 2015 Annual Meeting of Shareholders are incorporated by reference in Part III of this Form 10K to the extent described herein. https://www.sec.gov/Archives/edgar/data/354950/000035495015000008/hd212015x10xk.htm 1/74 9/4/2016 HD2.1.201510K https://www.sec.gov/Archives/edgar/data/354950/000035495015000008/hd212015x10xk.htm 2/74 9/4/2016 HD2.1.201510K Table of Contents THE HOME DEPOT, INC. FISCAL YEAR 2014 FORM 10K TABLE OF CONTENTS PART I Item 1. Business Item 1A. Risk Factors Item 1B. Unresolved Staff Comments Item 2. Properties Item 3. Legal Proceedings Item 4. Mine Safety Disclosures PART II Item 5. Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities 15 Item 6. Selected Financial Data 17 Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations Item 7A. Quantitative and Qualitative Disclosures About Market Risk Item 8. Financial Statements and Supplementary Data Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure Item 9A. Controls and Procedures Item 9B. Other Information PART III Item 10. Directors, Executive Officers and Corporate Governance Item 11. Executive Compensation Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters Item 13. Certain Relationships and Related Transactions, and Director Independence Item 14. Principal Accountant Fees and Services PART IV Item 15. Exhibits and Financial Statement Schedules Signatures https://www.sec.gov/Archives/edgar/data/354950/000035495015000008/hd212015x10xk.htm 1 7 12 13 15 15 18 28 29 55 55 55 56 57 57 57 57 58 61 3/74 9/4/2016 HD2.1.201510K Table of Contents CAUTIONARY STATEMENT PURSUANT TO THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995 Certain statements contained herein regarding our future performance constitute "forwardlooking statements" as defined in the Private Securities Litigation Reform Act of 1995. Forwardlooking statements may relate to, among other things, the demand for our products and services net sales growth comparable store sales effects of competition state of the economy state of the residential construction, housing and home improvement markets state of the credit markets, including mortgages, home equity loans and consumer credit demand for credit offerings inventory and instock positions implementation of store, interconnected retail and supply chain initiatives management of relationships with our suppliers and vendors the impact and expected outcome of investigations, inquiries, claims and litigation, including those related to our recent data breach issues related to the types of payment methods we accept and the timing of upgrades and enhancements impacting point of sales devices continuation of share repurchase programs net earnings performance earnings per share capital allocation and expenditures liquidity return on invested capital expense leverage stockbased compensation expense commodity price inflation and deflation the ability to issue debt on terms and at rates acceptable to us the effect of accounting charges the effect of adopting certain accounting standards store openings and closures and financial outlook. Forwardlooking statements are based on currently available information and our current assumptions, expectations and projections about future events. You should not rely on our forwardlooking statements. These statements are not guarantees of future performance and are subject to future events, risks and uncertainties - many of which are beyond our control, dependent on actions of third parties, or currently unknown to us - as well as potentially inaccurate assumptions that could cause actual results to differ materially from our expectations and projections. These risks and uncertainties include, but are not limited to, those described in Item 1A, "Risk Factors," and elsewhere in this report. Forwardlooking statements speak only as of the date they are made, and we do not undertake to update these statements other than as required by law. You are advised, however, to review any further disclosures we make on related subjects in our periodic filings with the Securities and Exchange Commission ("SEC"). PART I Item 1. Business. Introduction The Home Depot, Inc. is the world's largest home improvement retailer based on Net Sales for the fiscal year ended February 1, 2015 ("fiscal 2014"). The Home Depot stores sell a wide assortment of building materials, home improvement products and lawn and garden products and provide a number of services. The Home Depot stores average approximately 104,000 square feet of enclosed space, with approximately 24,000 additional square feet of outside garden area. As of the end of fiscal 2014, we had 2,269 The Home Depot stores located throughout the United States, including the Commonwealth of Puerto Rico and the territories of the U.S. Virgin Islands and Guam, Canada and Mexico. When we refer to "The Home Depot," the "Company," "we," "us" or "our" in this report, we are referring to The Home Depot, Inc. and its consolidated subsidiaries. The Home Depot, Inc. is a Delaware corporation that was incorporated in 1978. Our Store Support Center (corporate office) is located at 2455 Paces Ferry Road, N.W., Atlanta, Georgia 30339. Our telephone number is (770) 4338211. Our internet website is www.homedepot.com. We make available on the Investor Relations section of our website, free of charge, our Annual Reports to shareholders, Annual Reports on Form 10K, Quarterly Reports on Form 10Q, Current Reports on Form 8K, Proxy Statements and Forms 3, 4 and 5, and amendments to those reports, as soon as reasonably practicable after filing such documents with, or furnishing such documents to, the SEC. We include our website addresses throughout this filing for reference only. The information contained on our websites is not incorporated by reference into this report. For information on key financial highlights, including historical revenues, profits and total assets, see the "FiveYear Summary of Financial and Operating Results" on page F1 of this report and Item 7, "Management's Discussion and Analysis of Financial Condition and Results of Operations." 1 https://www.sec.gov/Archives/edgar/data/354950/000035495015000008/hd212015x10xk.htm 4/74 9/4/2016 HD2.1.201510K Table of Contents Data Breach In the third quarter of fiscal 2014, we confirmed that our payment data systems were breached, which impacted customers who used payment cards at our U.S. and Canadian stores (the "Data Breach"). For a description of matters related to the Data Breach, see Item 7, "Management's Discussion and Analysis of Financial Condition and Results of Operations" and Note 13 to the Consolidated Financial Statements included in Item 8, "Financial Statements." Our Business Operating Strategy Over the past several years, we have maintained a consistent strategic framework comprised of three key initiatives - Customer Service Product Authority and Disciplined Capital Allocation, Productivity and Efficiency - tied together through our Interconnected Retail initiative. In fiscal 2014, we focused on continuing to enhance our capability to deliver a superior interconnected retail experience for our customers. As customers increasingly expect to be able to buy how, when and where they want, we believe that providing a seamless shopping experience across multiple channels, featuring innovative and expanded product choices, will be a key enabler for future success. Becoming a bestinclass interconnected retailer is growing in importance as the line between online and instore shopping continues to blur. Our interconnected retail initiative supports and connects the three other key initiatives of our longstanding strategic framework, with the overall goal of strengthening the connectivity between our stores and our online channels and our connectivity with our customers. Our interconnected retail efforts are woven through each of our other three initiatives, each of which is discussed in more detail below. For example, under our customer service initiative, we strengthened connectivity in fiscal 2014 by rolling out the next generation of the FIRST Phone, a handheld mobile customer service tool used by our store associates. Under our product authority initiative, we continued to enhance our website and mobile sites, which serve as an extended aisle of products, product information and guidance on projects and services. Under our productivity and efficiency initiative, we continued to optimize our supply chain capabilities to build connectivity among our delivery channels. In fiscal 2014, we started a pilot for Buy Online, Deliver From Store ("BODFS"), which complements our existing interconnected retail programs: Buy Online, Pickup In Store ("BOPIS"), Buy Online, Ship to Store ("BOSS") and Buy Online, Return In Store ("BORIS"). Customer Service Our customer service initiative is anchored on the principles of simplifying the business, creating an emotional connection with our customers, putting customers first and taking care of our associates. Our longstanding goal has been to remove complexity from the stores to allow our associates to focus on our customers, and in fiscal 2014 we continued programs to reduce unnecessary store reports, storebased emails and meetings that took away from the time store associates could spend on selling activities. Our Customers. The Home Depot stores serve three primary customer groups, and we have different customer service approaches to meet their particular needs: DoItYourself ("DIY") Customers. These customers are typically home owners who purchase products and complete their own projects and installations. Our associates assist these customers with specific product and installation questions both in our stores and through online resources and other media designed to provide product and project knowledge. We also offer a variety of clinics and workshops both to impart this knowledge and to build an emotional connection with our DIY customers. DoItForMe ("DIFM") Customers. These customers are typically home owners who purchase materials and hire third parties to complete the project or installation. Our stores offer a variety of installation services targeted at DIFM customers who purchase products and installation of those products from us in our stores, online or in their homes through inhome consultations. Our installation programs include many categories, such as flooring, cabinets, countertops, water heaters, and sheds. In addition, we provide professional installation in a number of categories sold through our inhome sales programs, such as roofing, siding, windows, kitchen and bath refacing, furnaces, and central air systems. Professional Customers. These customers are primarily professional remodelers, general contractors, repairmen, small business owners and tradesmen. We recognize the unique service needs of the professional customer and use our expertise to facilitate their buying experience. We offer a variety of special programs to these customers, including delivery and willcall services, dedicated staff, expanded credit programs, designated parking spaces close to store entrances and bulk pricing programs for both online and instore purchases. In addition, we maintain a 2 https://www.sec.gov/Archives/edgar/data/354950/000035495015000008/hd212015x10xk.htm 5/74 9/4/2016 HD2.1.201510K Table of Contents loyalty program, Pro Xtra, that provides our professional customers with discounts on useful business services, exclusive product offers and a purchase tracking tool to enable receipt lookup online and job tracking of purchases across all forms of payment. This program, introduced in fiscal 2013, continued to gain traction, with approximately 2.5 million customers enrolled by the end of fiscal 2014. We help our DIY, DIFM and professional customers finance their projects by offering private label credit products in our stores through thirdparty credit providers. In fiscal 2014, our customers opened approximately 2.9 million new The Home Depot private label credit accounts, and at fiscal year end the total number of The Home Depot active account holders was approximately 11 million. Private label credit card sales accounted for approximately 23% of sales in fiscal 2014. Building Connectivity. In fiscal 2014, we continued to enhance our customers' interconnected shopping experiences through a variety of initiatives. As noted above, we completed the first major upgrade of our FIRST Phone instore mobile technology. Our new webenabled handheld devices, which allow mobile checkout, give our associates a simple customer service tool for locating products, checking inventory on hand or simply explaining product features. These capabilities are especially important for our "interconnected" customers. Many of our customers research products online and then go into one of our stores to view the products in person or talk to an associate before making the purchase. While in the store, customers may also go online to access ratings and reviews, compare prices or view our extended assortment. Our webenabled FIRST Phones help our associates assist with the online experience when they encounter customers in the aisles. Approximately 10% of our online orders were created from inside our stores in fiscal 2014. During fiscal 2014, we also introduced a new mobile app that provides an enhanced instore map and live chat feature, and we have found that our customers are using this mobile app inside our stores. We also recognize that customers desire greater visibility, control and options when it comes to receiving their products and services. In addition to our BOPIS, BOSS, and BODFS programs, during fiscal 2014 we developed several delivery enhancements for our customers. We began pilot programs to offer timespecific delivery of orders placed online or in the stores improve and simplify the instore experience for scheduling a delivery and enable customers to selfschedule a delivery on our website. Timespecific delivery capability will be particularly beneficial to our professional customers, who need to ensure their orders are delivered to their job sites at the time that aligns with the project plan to avoid disruptions or delays. We also made enhancements to our special order and installation process in fiscal 2014. First, we introduced our new Customer Order Management system, which is being rolled out to all U.S. stores. This system is designed to provide greater visibility into and improved execution of special orders by our associates and a more seamless experience for our customers. We also replaced our lead and purchase order management system with a single platform for our thirdparty installers. In addition to the new interface, installers have the option to integrate directly with our system through a secure data transmission. This system improves communications between installers and the stores and delivers a better customer experience. We also built better connectivity to reduce the time between a customer's initial inquiry for service and the service provider's contact with the customer, which makes it more likely that the customer will proceed with the project. Our Associates. Our associates are key to our customer service initiative. We empower our associates to deliver excellent customer service through our Customer FIRST training program, which includes enhanced training for our interconnected customers that stresses the importance of quick pickup of merchandise. We also have a number of programs to recognize stores and individual associates for exceptional customer and community service. At the end of fiscal 2014, we employed approximately 371,000 associates, of whom approximately 23,000 were salaried, with the remainder compensated on an hourly or temporary basis. To attract and retain qualified personnel, we seek to maintain competitive salary and wage levels in each market we serve. We measure associate satisfaction regularly, and we believe that our employee relations are very good. Product Authority Our product authority initiative is facilitated by our merchandising transformation and portfolio strategy, which is focused on delivering product innovation, assortment and value. In fiscal 2014, we continued to introduce a wide range of innovative new products to our professional, DIFM and DIY customers, while remaining focused on offering everyday values in our stores and online. Our Products. In fiscal 2014, we introduced a number of innovative and distinctive products to our customers at attractive values. Examples of these new products include Behr Marquee interior paint EGO 56volt lithiumion 3in1 cordless lawn mower Diablo Pergo blades from Freud touchless toilets from Kohler and the My Q Garage universal smartphone controller from Chamberlain. 3 https://www.sec.gov/Archives/edgar/data/354950/000035495015000008/hd212015x10xk.htm 6/74 9/4/2016 HD2.1.201510K Table of Contents During fiscal 2014, we offered a number of proprietary and exclusive brands across a wide range of departments, such as Husky hand tools and tool storage Defiant door locks Everbilt hardware fasteners Hampton Bay lighting and fans Vigoro lawn care products RIDGID and Ryobi power tools Glacier Bay bath fixtures HDX hardware, storage and cleaning products Home Decorators Collection furniture and home dcor and CE Tech audiovisual accessories. In fiscal 2014, we acquired one of our principal fasteners suppliers, known as Crown Bolt, which provides sourcing, distribution and instore servicing support for our Everbilt and related fastener brands. We will continue to assess strategic alliances and relationships with suppliers and opportunities to expand the range of products available under brand names that are exclusive to The Home Depot. We maintain a global sourcing program to obtain highquality and innovative products directly from manufacturers around the world. In fiscal 2014, in addition to our sourcing operations at our Store Support Center in Atlanta, Georgia, we maintained seven sourcing offices, located in Shanghai, China Shenzhen, China Taipei, Taiwan Gurgaon, India Rome, Italy Monterrey, Mexico and Toronto, Canada. The percentage of Net Sales of each of our major product categories (and related services) for each of the last three fiscal years is presented in Note 1 to the Consolidated Financial Statements included in Item 8, "Financial Statements." Net Sales outside the U.S. were $8.5 billion, $8.5 billion and $8.4 billion for fiscal 2014, 2013 and 2012, respectively. Longlived assets outside the U.S. totaled $2.5 billion, $2.9 billion and $3.1 billion as of February 1, 2015, February 2, 2014 and February 3, 2013, respectively. Quality Assurance. We have both quality assurance and engineering resources dedicated to overseeing the quality of all of our products, whether they are directly imported, locally or globally sourced or proprietary branded products. Through these programs, we have established criteria for supplier and product performance that are designed to ensure that our products comply with applicable international, federal, state and local safety, quality and performance standards. We also have a Supplier Social and Environmental Responsibility Program designed to ensure that our suppliers adhere to the highest standards of social and environmental responsibility. Building Connectivity. A typical The Home Depot store stocks approximately 30,000 to 40,000 products during the year, including both national brand name and proprietary items. To enhance our merchandising capabilities, we continued to make improvements to our information technology tools in fiscal 2014 to give our merchants and suppliers greater visibility into category and item performance and to better assort products within stores with similar attributes based on local preferences, regulations and demographics. We also continued to use the resources of BlackLocus, Inc., a data analytics and pricing firm we acquired in fiscal 2012, to help us make focused merchandising decisions based on large, complex data sets. We also use these analytics at a storelevel to automate and optimize our markdown and clearance process. As noted above, our online properties complement our stores by serving as an extended aisle, and we offer a significantly broader product assortment through our Home Depot, Home Decorators Collection and Blinds.com websites. For our online user experience, we continued to enhance our websites and mobile sites by improving navigation and search functionalities to allow customers to more easily find and purchase an expanded array of products and provide them with flexibility and convenience for their purchases, for example, through our BOPIS, BOSS and BODFS programs and other delivery enhancements introduced in fiscal 2014. As a result of these efforts, we increased traffic to our websites, online sales conversion rates, and the number of orders being picked up in our stores. For fiscal 2014, we had over 1.2 billion visits to our online properties sales from our online channels increased over 36% compared to fiscal 2013 and almost 40% of our online orders were picked up in a store, compared to approximately 30% in fiscal 2013. Energy Saving Products and Programs. The Home Depot has a longstanding commitment to sustainability, as do many of our customers, and we believe our efforts have been successful in creating value for our customers and shareholders. For example, we offer a growing selection of environmentallypreferred products, which supports sustainability and helps our customers save money, energy and water. Through our Eco Options Program introduced in 2007, we have created product categories that allow consumers to easily identify products that meet specifications for energy efficiency, water conservation, healthy home, clean air and sustainable forestry. As of the end of fiscal 2014, our Eco Options Program included over 9,000 products. Through this program, we sell products such as ENERGY STAR certified appliances, compact fluorescent light ("CFL") and LED light bulbs, tankless water heaters and other products, enabling our customers to save on their utility bills. We estimate that in fiscal 2014 we helped consumers save over $630 million in electricity costs through sales of ENERGY STAR certified products as well as almost 48 billion gallons of water and over $400 million in water bills through the sales of WaterSenselabeled bath faucets, showerheads, aerators, toilets and irrigation controllers. Additionally, as a result of converting all of our consumer interior paints to "Low VOC" or "Zero VOC" in fiscal 2012, we have eliminated over 55 million pounds of volatile organic compound emissions since the beginning of fiscal 2012 through the end of fiscal 2014. 4 https://www.sec.gov/Archives/edgar/data/354950/000035495015000008/hd212015x10xk.htm 7/74 9/4/2016 HD2.1.201510K Table of Contents We also continue to use the Eco Options page on our website to reach consumers interested in environmentally responsible and costsaving products and projects. The site provides consumers with information on the benefits of environmentallypreferred Eco Options products through "green" blogs, articles and projects, featured Eco Options products and energy and water savings calculators to help consumers estimate potential savings by switching out their older, less efficient products with energy and water saving models. We also support sustainability through our recycling efforts. We continue to offer our nationwide, instore CFL bulb recycling program launched in 2008. This service is offered to customers free of charge and is available in all U.S. stores. We also maintain an instore rechargeable battery recycling program. Launched in 2001 and currently done in partnership with Call2Recycle, this program is also available to customers free of charge in all stores throughout the U.S. Through these recycling programs, in fiscal 2014 we helped recycle over 725,000 pounds of CFL bulbs and over 940,000 pounds of rechargeable batteries collected from our customers. In fiscal 2014, we also recycled over 107,000 lead acid batteries collected from our customers under our lead acid battery exchange program, as well as over 200,000 tons of cardboard through a nationwide cardboard recycling program across our U.S. stores. We believe our Eco Options programs and our recycling efforts drive sales, which in turn benefits our shareholders, in addition to our customers and the environment. Seasonality. Our business is subject to seasonal influences. Generally, our highest volume of sales occurs in our second fiscal quarter, and the lowest volume occurs during our fourth fiscal quarter. Competition. Our industry is highly competitive, with competition based primarily on customer service, price, store location and appearance, and quality, availability and assortment of merchandise. Although we are currently the world's largest home improvement retailer, in each of the markets we serve there are a number of other home improvement stores, electrical, plumbing and building materials supply houses, and lumber yards. With respect to some products and services, we also compete with specialty design stores, showrooms, discount stores, local, regional and national hardware stores, mail order firms, warehouse clubs, independent building supply stores and, to a lesser extent, other retailers, as well as with installers of home improvement products. In addition, we face growing competition from online and multichannel retailers, some of whom have a lower cost structure than ours, as our customers increasingly use computers, tablets, smart phones and other mobile devices to shop online and compare prices and products. Intellectual Property. Our business has one of the most recognized brands in North America. As a result, we believe that The Home Depot trademark has significant value and is an important factor in the marketing of our products, ecommerce, stores and business. We have registered or applied for registration of trademarks, service marks, copyrights and internet domain names, both domestically and internationally, for use in our business, including our expanding proprietary brands such as HDX, Husky, Hampton Bay, Home Decorators Collection, Glacier Bay and Vigoro. We also maintain patent portfolios relating to some of our products and services and seek to patent or otherwise protect innovations we incorporate into our products or business operations. Disciplined Capital Allocation, Productivity and Efficiency We have advanced this initiative through building bestinclass competitive advantages in our information technology and supply chain to better ensure product availability to our customers while managing our costs. During fiscal 2014, we continued to focus on optimizing our supply chain network and improving our inventory, transportation and distribution productivity. Logistics. Our supply chain operations are focused on creating a competitive advantage through ensuring product availability for our customers, effectively using our investment in inventory, and managing total supply chain costs. Our fiscal 2014 initiatives have been to further optimize and efficiently operate our network, build new logistics capabilities and improve our inventory management systems and processes by investing in information technology. Our distribution strategy is to provide the optimal flow path for a given product. Rapid Deployment Centers ("RDCs") play a key role in optimizing our network as they allow for aggregation of product needs for multiple stores to a single purchase order and then rapid allocation and deployment of inventory to individual stores upon arrival at the RDC. This results in a simplified ordering process and improved transportation and inventory management. We have 18 mechanized RDCs in the U.S., and we opened our first RDC in Canada in early 2014, with a second Canadian RDC scheduled to open in the second half of fiscal 2015. We also continued our U.S. transload program for imported products in four facilities operated by third parties near ocean ports. Transload facilities allow us to improve our import logistics costs and inventory management by postponing final inventory deployment decisions until product arrives at destination ports. Over the past several years, we have centralized our inventory planning and replenishment function and continuously improved our forecasting and replenishment technology. This has helped us to improve our product availability and our 5 https://www.sec.gov/Archives/edgar/data/354950/000035495015000008/hd212015x10xk.htm 8/74 9/4/2016 HD2.1.201510K Table of Contents inventory productivity at the same time. At the end of fiscal 2014, over 95% of our U.S. store products were ordered through central inventory management. In addition to our RDCs and transload facilities, at the end of fiscal 2014, we operated 34 bulk distribution centers, which handle products distributed optimally on flat bed trucks, in the U.S. and Canada 21 stocking distribution centers in the U.S., Canada and Mexico and ten specialty distribution centers, which include offshore consolidation and return logistics centers, in the U.S. and Canada. We remain committed to leveraging our supply chain capabilities to fully utilize and optimize our improved logistics network. For example, we have begun to flow a portion of our BOSS orders through our RDCs, which reduces our transportation costs for those orders. Building Connectivity. We also believe that using our almost 2,000 U.S. stores as a network of convenient locations for our customers who shop online and use our BOPIS, BOSS and BORIS programs provides us with a competitive advantage. As noted above, in fiscal 2014, we started a pilot for BODFS, which will give us the capability to deliver orders placed online from our stores to the customer's home or job site. In addition, we added capacity for the more traditional online directtocustomer delivery methods in fiscal 2014. We opened two new direct fulfillment centers in Georgia and California, which brings our total to four direct fulfillment center operations in the U.S., and another facility is scheduled to open in the second half of fiscal 2015. These facilities will support our online growth with a balance of cost efficiency and speed in shipping online orders to meet our customers' needs. We expect these facilities to provide us the capability to deliver 90% of our customers' parcel orders in the U.S. within two days. Commitment to Environmentally Responsible Operations. The Home Depot is committed to conducting business in an environmentally responsible manner. This commitment impacts all areas of our business, including energy usage, supply chain, store construction and maintenance, and, as noted above under "Energy Saving Products and Programs," product selection and delivery of product knowledge to our customers. In fiscal 2014, our energy management team continued to implement strict operational standards that establish energy efficient practices in all of our U.S. facilities. These include HVAC unit temperature regulation and adherence to strict lighting schedules, which are the largest sources of energy consumption in our stores, as well as use of energy management systems in each store to monitor energy efficiency. We estimate that by implementing and utilizing these energy saving programs, we have saved over 8.6 billion kilowatt hours (kWh) since 2004. We set a goal to reduce our kWh per square foot in our U.S. stores by 20% by 2015. We met that goal in fiscal 2013, well in advance of our targeted date, and estimate a reduction of almost 32% as of the end of fiscal 2014. Through our supply chain efficiencies described above under "Logistics," we targeted a 20% reduction in our domestic supply chain greenhouse gas emissions from 2008 to 2015. We also continued to monitor our "carbon footprint" from the operation of our stores as well as from our transportation and supply chain activities. Through our supply chain and energy reduction initiatives, we have exceeded our goal by reducing our absolute carbon emissions by over 1.9 million metric tons from 2008 to 2013, including the reduction of over 125,000 metric tons in 2013. At our stores, we implemented a rainwater reclamation project in 2010. As of the end of fiscal 2014, we had retrofitted 150 of our stores with reclamation tanks to collect rainwater and condensation from HVAC units and garden center roofs, which is in turn used to water plants in our outside garden centers. We estimate our annual water savings from these units to be approximately 500,000 gallons per retrofitted store in fiscal 2014. Our efforts have resulted in a number of environmental awards and recognitions. For example, in 2014, we received three significant awards from the U.S. Environmental Protection Agency ("EPA"). We were named "Retail Partner of the Year" by both the ENERGY STAR division and WaterSense division of the EPA for our overall excellence in energy efficiency and water efficiency, and we received the EPA's "SmartWay Excellence Award," which recognizes The Home Depot as an industry leader in freight supply chain environmental performance and energy efficiency. We also participate in the CDP (formerly known as the Carbon Disclosure Project) reporting process. CDP is an independent, international, notforprofit organization providing a global system for companies and cities to measure, disclose, manage and share environmental information. In 2014, we scored 93 out of 100 from the CDP for our disclosure, placing us among the highest scoring retailers and in the top quartile of our sector. We also received a performance band ranking of A (out of a range from A to E), reflecting a high level of action on climate change mitigation, adaptation and transparency. We are strongly committed to maintaining a safe shopping and working environment for our customers and associates and protecting the environment of the communities in which we do business. Our Environmental, Health & Safety ("EH&S") function is dedicated to ensuring the health and safety of our customers and associates, with trained associates who evaluate, develop, implement and enforce policies, processes and programs on a Companywide basis. Our EH&S policies are woven 6 https://www.sec.gov/Archives/edgar/data/354950/000035495015000008/hd212015x10xk.htm 9/74 9/4/2016 HD2.1.201510K Table of Contents into our everyday operations and are part of The Home Depot culture. Some common program elements include: daily store inspection checklists (by department) routine followup audits from our storebased safety team members and regional, district and store operations field teams equipment enhancements and preventative maintenance programs to promote physical safety departmental merchandising safety standards training and education programs for all associates, with varying degrees of training provided based on an associate's role and responsibilities and awareness, communication and recognition programs designed to drive operational awareness and understanding of EH&S issues. Returning Value to Shareholders. In addition to making disciplined decisions about capital allocation, we maintained our focus on expense control, which drove higher returns on invested capital and allowed us to return value to shareholders through $7.0 billion in share repurchases and $2.5 billion in dividends in fiscal 2014, as discussed in Item 7, "Management's Discussion and Analysis of Financial Condition and Results of Operations." Item 1A. Risk Factors. The risks and uncertainties described below could materially and adversely affect our business, financial condition and results of operations and could cause actual results to differ materially from our expectations and projections. You should read these Risk Factors in conjunction with "Management's Discussion and Analysis of Financial Condition and Results of Operations" in Item 7 and our Consolidated Financial Statements and related notes in Item 8. There also may be other factors that we cannot anticipate or that are not described in this report generally because we do not currently perceive them to be material. Those factors could cause results to differ materially from our expectations. Strong competition could adversely affect prices and demand for our products and services and could decrease our market share. We operate in markets that are highly competitive. We compete principally based on customer service, price, store location and appearance, and quality, availability and assortment of merchandise. In each market we serve, there are a number of other home improvement stores, electrical, plumbing and building materials supply houses and lumber yards. With respect to some products and services, we also compete with specialty design stores, showrooms, discount stores, local, regional and national hardware stores, mail order firms, warehouse clubs, independent building supply stores and, to a lesser extent, other retailers, as well as with installers of home improvement products. In addition, we face growing competition from online and multichannel retailers, some of whom have a lower cost structure than ours, as our customers increasingly use computers, tablets, smart phones and other mobile devices to shop online and compare prices and products in real time. Intense competitive pressures from one or more of our competitors or our inability to adapt effectively and quickly to a changing competitive landscape could affect our prices, our margins or demand for our products and services. If we are unable to timely and appropriately respond to these competitive pressures, including through maintenance of superior customer service and customer relationships, our market share and our financial performance could be adversely affected. We may not timely identify or effectively respond to consumer needs, expectations or trends, which could adversely affect our relationship with customers, our reputation, the demand for our products and services, and our market share. The success of our business depends in part on our ability to identify and respond promptly to evolving trends in demographics consumer preferences, expectations and needs and unexpected weather conditions, while also managing appropriate inventory levels and maintaining high levels of customer service. It is difficult to successfully predict the products and services our customers will demand. As the housing and home improvement market continues to recover, resulting changes in demand will put further pressure on our ability to meet customer needs and expectations and maintain high service levels. In addition, each of our primary customer groups - DIY, DIFM and professionals - have different needs and expectations. If we do not successfully differentiate the shopping experience to meet the individual needs and expectations of a customer group, we may lose market share with respect to those customers. Customer expectations about the methods by which they purchase and receive products or services are also evolving. Customers are increasingly using technology and mobile devices to rapidly compare products and prices and to purchase products. Once products are purchased, customers are seeking alternate options for delivery of those products. We must continually anticipate and adapt to these changes in the purchasing process. We have implemented programs like BOSS and BOPIS, and are piloting BODFS, but we cannot guarantee that these programs or others we may implement will be implemented successfully or will meet customers' needs and expectations. Customers are also using social media to provide feedback and information about our Company and products and services in a manner that can be quickly and broadly disseminated. To the extent a customer has a negative experience and shares it over social media, it may impact our brand and reputation. 7 https://www.sec.gov/Archives/edgar/data/354950/000035495015000008/hd212015x10xk.htm 10/74 9/4/2016 HD2.1.201510K Table of Contents Further, we have an aging store base that requires maintenance and space reallocation initiatives to deliver the shopping environment that our customers desire. Failure to maintain our stores and utilize our store space effectively, to provide a compelling online presence, to timely identify or respond to changing consumer preferences, expectations and home improvement needs and to differentiate the customer service experience for our three primary customer groups could adversely affect our relationship with customers, our reputation, the demand for our products and services, and our market share. Our success depends upon our ability to attract, train and retain highly qualified associates while also controlling our labor costs. Our customers expect a high level of customer service and product knowledge from our associates. To meet the needs and expectations of our customers, we must attract, train and retain a large number of highly qualified associates while at the same time controlling labor costs. Our ability to control labor costs is subject to numerous external factors, including prevailing wage rates and health and other insurance costs, as well as the impact of legislation or regulations governing labor relations, minimum wage, or healthcare benefits. In addition, we compete with other retail businesses for many of our associates in hourly positions, and we invest significant resources in training and motivating them to maintain a high level of job satisfaction. These positions have historically had high turnover rates, which can lead to increased training and retention costs, particularly if the economy continues to improve and employment opportunities increase. There is no assurance that we will be able to attract or retain highly qualified associates in the future. We discovered a data breach in the third quarter of fiscal 2014 and are still in the process of determining the full extent of its impact and the impact of related government investigations and civil litigation on our results of operations, which could be material. Our recent Data Breach involved the theft of certain payment card information and customer email addresses through unauthorized access to our systems. As a result of the Data Breach, we are facing at least 57 civil lawsuits filed in the U.S. and Canada, and other claims may be asserted on behalf of customers, payment card brands, payment card issuing banks, shareholders, or others seeking damages or other related relief, allegedly arising out of the Data Breach. We are also facing investigations by a number of state and federal agencies. Our financial liability arising from these claims and investigations will depend on many factors, one of which is whether, at the time of the Data Breach, the portion of our network that handles payment card data was in compliance with applicable payment card industry standards. Another factor is whether, and if so to what extent, any fraud losses or other expenses experienced by cardholders, the payment card networks or the card issuing banks on or with respect to the payment card accounts affected by the Data Breach can be properly attributed to the Data Breach and whether and to what extent those losses and expenses would in any event be our legal responsibility. These claims and investigations may adversely affect how we operate our business, divert the attention of management from the operation of the business and result in additional costs and fines. In addition, the governmental agencies investigating the Data Breach may seek to impose injunctive relief, which could materially increase our data security costs, adversely impact how we operate our systems and collect and use customer information, and put us at a competitive disadvantage with other retailers. Investigations of the Data Breach are ongoing, and we are still in the process of assessing the financial and other impacts of the Data Breach. It is possible that we will identify additional information that was accessed or stolen, or other unforeseen developments related to the Data Breach could occur, which could have a further adverse impact on our operations, financial results and reputation. If our efforts to maintain the privacy and security of customer, associate, supplier or Company information are not successful, we could incur substantial additional costs, and become subject to further litigation, enforcement actions, and reputational damage. Our business, like that of most retailers, involves the receipt, storage and transmission of customers' personal information, consumer preferences and payment card information, as well as confidential information about our associates, our suppliers and our Company, some of which is entrusted to thirdparty service providers and vendors. We also work with thirdparty service providers and vendors that provide technology, systems and services that we use in connection with the receipt, storage and transmission of this information. Our information systems, and those of our thirdparty service providers and vendors, are vulnerable to an increasing threat of continually evolving cybersecurity risks. Unauthorized parties may attempt to gain access to these systems or our information through fraud or other means of deceiving our associates, thirdparty service providers or vendors. Hardware, software or applications we develop or obtain from third parties may contain defects in design or manufacture or other problems that could unexpectedly compromise information security. The methods used to 8 https://www.sec.gov/Archives/edgar/data/354950/000035495015000008/hd212015x10xk.htm 11/74 9/4/2016 HD2.1.201510K Table of Contents obtain unauthorized access, disable or degrade service, or sabotage systems are also constantly changing and evolving, and may be difficult to anticipate or detect for long periods of time. We have implemented and regularly review and update processes and procedures to protect against unauthorized access to or use of secured data and to prevent data loss. However, the everevolving threats mean we and our thirdparty service providers and vendors must continually evaluate and adapt our respective systems and processes, and there is no guarantee that they will be adequate to safeguard against all data security breaches or misuses of data. Any future significant compromise or breach of our data security, whether external or internal, or misuse of customer, associate, supplier or Company data, could result in additional significant costs, lost sales, fines and lawsuits, and damage to our reputation. In addition, as the regulatory environment related to information security, data collection and use, and privacy becomes increasingly rigorous, with new and constantly changing requirements applicable to our business, compliance with those requirements could also result in additional costs. We are subject to paymentrelated risks that could increase our operating costs, expose us to fraud or theft, subject us to potential liability and potentially disrupt our business. We accept payments using a variety of methods, including cash, checks, credit and debit cards, PayPal, our private label credit cards and installment loan program, and gift cards, and we may offer new payment options over time. Acceptance of these payment options subjects us to rules, regulations, contractual obligations and compliance requirements, including payment network rules and operating guidelines, data security standards and certification requirements, and rules governing electronic funds transfers. These requirements may change over time or be reinterpreted, making compliance more difficult or costly. The payment card industry has set October 1, 2015 as the date on which it will shift liability for certain transactions to retailers who are not able to accept EMV chip card credit and debit transactions. To be able to accept all forms of EMV card transactions by the target date, we are reliant on various third parties to establish the standard for such transactions, develop and test the required software, define the applicable certification standards, and certify compliance with those standards. The failure of these third parties to timely complete and deliver needed elements, or our failure to effectively and timely implement those elements once received, will impact our ability to be able to accept all types of EMV card transactions by the target date, which could in turn result in increased costs associated with the liability shift. For certain payment methods, including credit and debit cards, we pay interchange and other fees, which may increase over time and raise our operating costs. We rely on third parties to provide payment processing services, including the processing of credit cards, debit cards, and other forms of electronic payment. If these companies become unable to provide these services to us, or if their systems are compromised, it could potentially disrupt our business. The payment methods that we offer also subject us to potential fraud and theft by criminals, who are becoming increasingly more sophisticated, seeking to obtain unauthorized access to or exploit weaknesses that may exist in the payment systems, as reflected in our recent Data Breach. If we fail to comply with applicable rules or requirements for the payment methods we accept, or if paymentrelated data is compromised due to a breach or misuse of data, we may be liable for costs incurred by payment card issuing banks and other third parties or subject to fines and higher transaction fees, or our ability to accept or facilitate certain types of payments may be impaired. In addition, our customers could lose confidence in certain payment types, which may result in a shift to other payment types or potential changes to our payment systems that may result in higher costs. As a result, our business and operating results could be adversely affected. Uncertainty regarding economic conditions and other factors beyond our control could adversely affect demand for our products and services, our costs of doing business and our financial performance. Our financial performance depends significantly on the stability of the housing, residential construction and home improvement markets, as well as general economic conditions, including changes in gross domestic product. Adverse conditions in or uncertainty about these markets or the economy could adversely impact consumer confidence, causing our customers to delay purchasing or determine not to purchase home improvement products and services. Other factors beyond our control - including high levels of unemployment and foreclosures